Novell's Profit Freight Train

Woo-woo! The Novell (Nasdaq: NOVL) turnaround train continues to rumble down the tracks. Last night, the networking software developer turned in its fiscal Q3 results, which featured earnings of $0.14 per share. That was double the $0.07 per share reported a year ago and a penny ahead of the First Call mean estimate. The year-over-year earnings growth is impressive, especially considering revenues only rose 20% in the period to $327 million.

How'd they do that?

To start, gross margins ticked up to 77.5% from 76.8% a year ago. Meanwhile, product development and general and administrative costs went nowhere, and sales and marketing costs increased by only 12% -- much slower than the firm's revenue growth. Finally, Novell's share repurchases over the past year permitted a 3% decline in the weighted number of average shares. Put it all together, and the EPS pop is explained.

Most of the firm's growth came from the company's NetWare 5 Internet Protocol (IP)-based server software, which was introduced during last year's Q4 and is benefiting from the delayed release of an updated version of Microsoft's(Nasdaq: MSFT) Windows NT 4.0 server software. Revenues from the server business came in at $175 million, up 27% from a year ago. According to reports, the NetWare 5 product rang up sales of $108 million in the period, up 19% from the previous quarter.

Since recording an ugly $122 million loss in Q3 of 1997, the company's shares have tripled as the turnaround effort has taken hold. Feeling confident once again, the company is starting to invest in new opportunities. Some $170 million has been set aside for venture capital investments, and the firm is setting its sights on taking a chunk out of a totally new product category with its new Internet Caching System (ICS) software.

News to Go

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Computing products company Apple Computer(NYSE: AAPL) is suing privately held cheap PC maker eMachines Inc. for allegedly ripping off the design characteristics of its popular fruit-colored iMac computers and incorporating them into eMachines' recently released eOne. Apple leveled similar charges against Future Power and Daewoo last month.

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